Google, Groupon Stay Mum on Possible Deal of the Day

Silicon Valley acquisition rumors serve a number of purposes. Potential acquirers use them to negotiate through the press. Investment banks frequently plant them to put pressure on negotiating parties. And startups often float them to prompt bidding wars — or just to draw attention to themselves.

One or more of these tried-and-true scenarios may or may not be what occurred with the latest rumor flying around tech circles Monday, but one thing is for sure: Neither Google nor Groupon has confirmed the search giant’s alleged $2.5 billion purchase of the white-hot deal-of-the day startup.

(It appears that Google and Groupon have decided to negotiate through the press. See late update below.)

Groupon is a website that offers consumers major discounts on products and services — if enough people sign up for the deal. In other words, the service leverages the economies-of-scale made possible by the web to make it worth a merchant’s while to offer the steep discount. Groupon then gets a big cut, about 50 percent, of every sale made. For example, just a few days ago, more than 15,000 people signed up for “$25 for $50 Worth of In-Store Clothing and Accessories at American Apparel.”

The Vator.tv website said Monday: “Google has just purchased Groupon for $2.5 billion, according to an unnamed insider who spoke with VatorNews.” Although the website affirmatively reported that the deal is done, it posed the news as a question in its headline: “Google Buys Groupon for $2.5 Billion?”

“We have nothing to announce at this time,” a Groupon spokesperson told Wired.com. “We don’t comment on rumor or speculation,” a Google spokesperson told Wired.com. Not exactly twin press releases heralding the merger.

Would it make sense for Google to buy Groupon? Yes.

In only its second year, Groupon is on track to generate $500 million in revenue, making it one of the fastest-growing startups — in terms of actual money, not users — in history. The local online-deals space is booming, so it makes a lot of sense for Google to get into the market by gobbling up a lead player earlier rather than later.

Would buying Groupon carry risks for the web search leader? Yes.

Just about every major federal agency with oversight of the web’s most powerful company is sniffing around Mountain View, and Google hasn’t made a major acquisition in years that hasn’t attracted a government once-over. So there’s little doubt this one would escape scrutiny. It kind of makes you wonder: Does Google really want to keep inviting federal regulators to examine its market power? Presumably that’s a question Google’s D.C. wizards are pondering.

So what do we actually know about this story? We know what Google is. And we know that Groupon is the white-hot deal site that has large tech and media companies salivating — not to mention the investment bankers it has hired to shop itself around.

We know that there were failed talks between Groupon and Yahoo, and we also know that there have been talks between Google and Groupon. (We know these things because Kara Swisher reported them.)

Beyond that, neither company is confirming the deal, nor saying much of anything. My best guess is that talks are indeed proceeding apace between the two companies, but we’re still days if not weeks away from a deal, if one does occur. Groupon and its bankers surely want the highest price for the company, and the best way to achieve that is a bidding war.

So this looks to me like another example of a startup trying to negotiate through the press in order to maximize its exit, a strategy which can carry risks. Ultimately, I think this deal gets made. Whether regulators sign off on it is another matter.

Google is near a deal to acquire Groupon, the pioneering online discounter, for as much as $6 billion, people with direct knowledge of the matter said Monday.

A deal, in the $5 billion to $6 billion range, could be struck as soon as this week, these people said, cautioning that the talks still could fall apart.

Google is unlikely to offer more than $5 billion to $6 billion for Groupon, “according to one of the people with knowledge of the deal,” the paper reported.

UPDATE 2AM 11/30: Now Kara Swisher reports that Google has offered $5.3 billion for Groupon with a $700 million earnout, which means if the deal goes well, Groupon’s investors do better. She says the deal could be struck as early as tomorrow.